Ease of doing business ranking: How Delhi, Mumbai skew the results

The department of industrial policy and promotion (DIPP), ministry of commerce and industry, in partnership with The World Bank Group released the results of the Assessment of State Implementation of Business Reforms 2015-16 on Monday.

The MoS for Commerce & Industry, Nirmala Sitharaman, interacting with the media on the EoDB report – State ranking, in New Delhi.

The department of industrial policy and promotion (DIPP), ministry of commerce and industry, in partnership with The World Bank Group released the results of the Assessment of State Implementation of Business Reforms 2015-16 on Monday.

These are ranks and scores based on evidence submitted for implementation of 7,124 reforms by states/UTs on a 340-point Business Reform Action Plan (BRAP) covering period from July 1, 2015 to June 30, 2016 for 32 states and UTs. These submissions were reviewed by The bank’s team and validated by DIPP on real-time basis. The states were ranked on six key reform areas: single-window systems, tax reforms, construction permits, environment and labour reforms, inspection reforms, and commercial disputes and paper-less courts.

Last year, the implementation average was 32% which is significantly lower than 48.93% for this year. The results of the assessment show that states have progressively made efforts to making it easier to do business. Further, last year, not a single state implemented more than 75% of reforms, this year, 16 states implemented more than 75% of the reforms. There are a few interesting things to note:

First, Haryana, Telangana and Uttarakhand have improved the most in DIPP-World Bank Ease of Doing Business ranks. While the three states have done well on all parameters, these have missed out in areas such as digitisation of land records at local municipality office, integrating land record database, judicial reforms pertaining to filing of vacancies in district courts etc.

Second, though the correlation between investment rank and ease of doing business rank seems good, there is an outlier. Karnataka scores maximum in terms of investment. However, it ranks 13 on ease of doing business with a score of 88.39%. This is so because the state has not made good progress in tax reforms and single window system. These are two areas where the other states have performed better than Karnataka. Also, within Karnataka, only Bangalore seems to have attracted investment versus the other cities. Hence, the ease of doing business ranking seems more holistic.

Third, it is interesting to explore the source of the high scores for Andhra Pradesh and Telangana. As expected, the south Indian states have done phenomenally well in terms of implementation of single window clearing and tax reforms. Active private sector participation and focus on infrastructure in Andhra Pradesh and IT exports in Telengana seem to have paved way for their success. On the other hand, Andhra Pradesh and Telangana could not achieve a 100% score as they lacked in land records data integration at various levels and in failing to design and implement a system that allows for e-summons and digitally signed court orders for commercial disputes in courts.

Fourth, Chandigarh, Jammu & Kashmir, Meghalaya, Lakshwadeep and Andaman & Nicobar Islands have scored the least. Their score of 0.30 shows that the reform process is very slow. This is an outcome of unwillingness on the part of government to give priority to the reforms. To speed up the process, these states/UTs require additional mentorship from the central government. They need to learn from the best practices adopted by other states.

While it is interesting to note the healthy competition among states, it remains to be seen whether PM Narendra Modi’s dream of ensuring India’s place in the top 50 countries will come true or not. Currently, India’s rank is 130 which has moved up by just one spot from 131 last year. As mentioned by country director of the bank, one size does not fit big and diverse countries like India, there is a clear cut need to consider reforms undertaken across the country while calculating India’s position. Currently, only Delhi and Mumbai are considered while calculating Ease of Doing Business Index for India as a whole. This clearly is an incomplete picture.

Overall, these results help the states know the situation of ease of doing business. It might be a good idea to have the reform recommendations in line with the best international practices. Further, each reform recommendation should have a clear vision of a desirable end goal. This vision should be communicated to the states at the outset of the reform process so that there is a shared objective. DIPP may engage with state governments on a regular basis to discuss the reform action plan, agree on key next steps and monitor the progress of reforms. To allow for impact of these reforms to be felt on ground, there is a need to properly communicate, monitor and evaluate these reforms.

There is also a lesson to be learnt from this assessment. The assessment results are based on an online dashboard created by the DIPP that tracks implementation in real time. The dashboard updates rankings every time a response by a state is validated by the DIPP. This kind of real time data collection should be adopted for compiling other statistics such as employment data.

Kumar is senior fellow, CPR and founding director, PahleIndia Foundation, while Jain is senior fellow at PahleIndia Foundation.Views are personal.